Behind the Italian theatre

Derk Jan Eppink // Wed, 20. Feb 2013

The Italian election campaign seems to be a political version of a popular theatre with farcical characters in surreal situations. In reality, a dangerous situation is developing for the Eurozone. Ex-Prime Minister Silvio Berlusconi, somewhat prematurely presumed dead, represents the gut feeling of Italians on austerity policies, which he portrays as a German diktat. "We must have this showdown with Germany. Otherwise the reality will force many countries, one after another, to exit the euro.”

Italians nearly match the Greek in their dislike of Germany. Berlusconi is responding to anti-German sentiment, while current Prime Minister Mario Monti evokes the image of a German vassal. Monti, a senator for life, has never fought an electoral battle. The centre coalition which wants to keep him in power is favoured by the Italian establishment, but not by the man in the street. This is proven by the rise of the Five Star Movement led by the clownish Beppe Grillo. The leftist candidate Pier Luigi Bersani, furtively criticises the austerity policies. Bersani knows that he might need Monti as kingmaker. His left wing desperately wants to get rid of Monti's policy. Desertion threatens the leftist coalition.

Italy struggles with a dilemma: it embraces the euro as a symbol of European unity, but economically it cannot afford the coin. To Italians, the crown of European unity is a crown of thorns. Since the introduction of the euro, the Italian economy barely grew, meaning that the rich North of the country is increasingly unable to maintain the poorer South with an annual funding of 50 billion Euros. The Italian professor of economics at the Catholic University of the Sacred Heart in Milan, Claudio Borghi, recently said this in Brussels: "The Italian economy is a reflection of the European economy. The North is Germany, France is the middle part and Greece is the South. Rome is Brussels." He argued that Germany should leave the Eurozone, but for now that statement is similar to cursing in church.

The Italian problem is as old as Italy itself, which in 1861 introduced the lira as the single currency: North and South had on average about the same level of prosperity then; Naples was one of the largest cities in Europe. The result of the lira was that the liberal north with its industrialization, influx of capital and labour started an economic advancement, while the feudal Southern Italy, the Mezzogiorno, collapsed. That welfare gap still exists, despite all transfers from North to South, which first went through Rome, like the Cassa per il Mezzogiorno, and later by European funds from Brussels. The lira was tailored to the North. The coin, too strong for the South, was weak enough for the North to allow export. The downside was that corporate profits were taxed so Rome could channel money to the South. These grants funded primarily an administrative underworld, with the government as the largest employer. 'Jobs in exchange for votes': Calabria has more forest rangers than Canada. But the northern industry maintained its advantage: the relatively weak lira offered competitiveness, especially in a European market.

European monetary integration smothered that benefit. The early nineties saw Italy being forced to leave the European Monetary System (EMS) in which European currencies had almost fixed exchange rates. Italian export had collapsed. Only after Italy left the EMS and the lira was devalued did exports recover and did the golden years of the "Italian miracle" begin. It came to a dramatic end with the introduction of the Euro. The European currency - being tailored to Germany - was far too expensive for Northern Italy. Export collapsed, devaluation of the currency was not possible and Italians lived off credit until the financial crisis. Now, many companies in Northern Italy are going bankrupt and citizens live off their savings. The tax burden remains high, and was further increased by Monti, because the transfers to the Mezzogiorno must continue. If not, the South will revolt.

The hopelessness of the South runs parallel with the impoverishment of the North. Berlusconi exploits that, together with Lega Nord, depicting Rome as the starting point of Africa. Roberto Maroni, leader of Lega Nord, advocates the introduction of a parallel currency alongside the euro in the Lombardy region.

Thanks to the European monetary union the signs of dissolvement of the single currency smolder in Italy, the third industrial power of Europe. Italians love the Euro but hate the effects of the Euro. That is the reality behind their theatre.

Derk Jan Eppink

Political Analyst

Derk Jan Eppink (1958) is former of the European Parliament and was vice president of the European Conservatives and Reformists (ECR). He worked as member of cabinet in the European Commission.

As a journalist he worked with NRC Handelsblad and De Standaard. At the moment he is senior fellow with the London Policy Center (LPC), a New York based think tank and he is foreign affairs columnist for the Dutch newspaper De Volkskrant.